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What happened in Q1 1995 and Q2 1997 ? Both times the EDL hit zero, and no recession ensued. Would you have predicted a recession at these times ? How would you have interpreted your model in lieu of what actually happened ?

What is the difference between the short recession of Q2 2001 that started when the EDL was far away from zero and the recession of Q1 2008, where the recession began just after the ELD had touched zero ? How to explain the difference ?

Thank your for your interesting work !


Hello A. Matthey,
The 90s had some different dynamics. Productivity was rising. Labor share was rising fast. Capacity utilization was standing still. Basically, the economy was growing at the ED (effective demand) limit. The dynamics are different this time with global fragility and debt overhang.
After 1997, the economy went into a strange moment. Labor share was rising fast. Eventually, the rise in the Fed rate was too much and the economy began to slow down revealing bubbles that then popped.

The recession of 2002 took a while to manifest due to bubbles, growth in China, and surging productivity. Effective demand kept rising, but it happened upon a bubble atmosphere.
The quickness of the recession in 2007 was due to the extreme excesses in the financial industry. The recession would not have happened so fast without the excesses. However, keep in mind that capacity utilization had stalled for a number of years at the ED limit. Within the finance industry they started to bet that the economy would slow down. There was a sense that the business cycle had come to its limit. Debt was rising. The economy had to correct. Eventually the excesses of the finance industry deepened the recession as those excesses had to be repaired.

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Data as of 3rdQ-2017
Effective Demand = $17.424 trillion
Real GDP = $17.157 trillion
Productive Capacity is rising to next business cycle = $23.558 trillion
UT index is falling= +1.1%
Effective demand limit = 73.9%
TFUR = 72.8%
ED Fed rate rule (down from a peak of 3.8% in 2014) = 2.2%
Estimated Natural Real Interest rate = 2.2%
Short-term real interest rate (fallen from 2.8% peak in 2014) = -1.7%

There is no recession for 3rdQ-2017. Chance of recession is growing as economy heads toward 2nd effective demand limit in this business cycle. I am forecasting economic contraction in 2018.

Click on Graphs below to see updated data at FRED.

UT Index (measure of slack):

The UT Index



z derivatives in terms of labor & capital:

z derivatives in terms of labor & capital

Effective Demand, real GDP & Potential GDP:

ED, real GDP & pot rGDP

ED Output Gap:

ED Output gap

Corporate profit rate over real cost of money:

Corp profit rate over real cost of money

Exponential decay of Inflation:

Corporate profits impact Inflation

Measures of Inflation:

Measures of Inflation

YoY Employment change:

YoY employment change

Speed of consuming slack: yoy monthly:

Speed of consuming slack

Speed of consuming slack: quarterly:

Speed of consuming slack quarterly

Real consumption per Employee:

real consumption per employee 2

Will real wages ever rise faster than productivity?:

Productivity & Real Wages

Real Wage Index:

real wage index



Productivity against Effective Demand limit:

Prod & ED limit

Bottom of Initial Claims?:

Initial claims

Tracking inflation expectations:

Fisher effect?

M2 velocity still falling:

Measures of Inflation

All in one:

All in one

Double checking labor share with unit labor costs & inflation:

My Photo
Edward Lambert: Independent Researcher on Effective Demand.
Some links for economic analysis
Fed Views - San Francisco Fed, around 10th of each month.
Well's Fargo monthly - around 10th of each month
Well's Fargo weekly
Well's Fargo Interest rate report
Well's Fargo Economic indicators
T. Rowe Price weekly market wrap-up
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